Saturday, August 31, 2013

We are in a long-term trend where additional debt undermines the system as the positive returns on that debt turn negative.

Want to know why things are falling apart? Just look at our soaring systemic debt and the diminishing returns on that debt. Our Chartist Friend from Pittsburgh has assembled a comprehensive series of charts on systemic debt (called total credit market debt in FedSpeak) that starkly illustrates the diminishing return on more debt:

Take a look at total credit market debt and gross domestic product (GDP), year-over-year: notice the correlation? Recall that defaults and writedowns of bad debt remove debt from the ledger, so in an era of deleveraging, new debt must exceed the writedowns of uncollectible debt to actually increase total debt.

Here is total credit market debt and velocity of money, year-over-year: the velocity of money is a measure of how fast money changes hands. In a robust economy, for example 1987 - 1999, the velocity of money is high. In recessions, it is low as fiscally prudent people and enterprises hesitate to borrow and spend.

It's easy to confuse trends and cycles. The Keynesian Cargo Cultists believe that we're in a cyclical downturn that can be "cured" with more debt-based spending, i.e. worshiping their false god of aggregate demand. They cannot comprehend that we're not in a business-cycle recession, we are in a long-term trend where additional debt undermines the system as the positive returns on that debt turn negative.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

1. Debt and financialization2. Crony capitalism and the elimination of accountability3. Diminishing returns4. Centralization5. Technological, financial and demographic changes in our economyComplex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).
We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

Friday, August 30, 2013

We assume the existing hyper-structures of our centralized state-cartel economies will deliver us jobs, happiness, wealth, health and financial security. They will not.

Correspondent Simon H.'s insightful essay is not just a critique of our current centralized economies but an outline of a community-based alternative economy that offers freedom instead of dependence. Though his examples are drawn from the U.K., the dynamics are the same in America and other advanced state-cartel economies.

Here is his essay.

Freedom as infrastructural independence from existing institutions

Why is it so hard to be productive and useful? To be productive and useful in our contemporary societies involves having a 'job' and being paid wages in a fiat currency and paying taxes on them. To be either economically or socially productive means that one has to enter into contracts and obligations demanded by our existing infrastructures and institutions.

Looking at the very high levels of under and unemployment throughout Europe and the US some might say that the system is not working.

One can come up with a far more radical hypothesis on this point when one makes the assumption that the system does not care if you or even it are productive or not. It simply needs you to be dependent upon it and the matrix of its infrastructures, institutions and bureaucracies. Indeed the more people the system can make entirely dependent upon it, the more secure that system becomes as those dependents will seldom bite the political and bureaucratic hands that are feeding and 'enabling' them in very limited terms.

In the UK, if one is in receipt of Jobseeker's Allowance, the system is constructed to compel you to be as unproductive as possible. In order to receive the allowance you cannot work in a voluntary capacity as you have to be permanently available for paid work if it should ever materialize, nor can you easily ease into self-employment in a piecemeal or transitionary way.

Only very limited, authorized forms of training are available and one certainly couldn't devise one's own training programme to learn computer programming or any other useful self taught skills or even set oneself a programme for studying one's own degree.

To be independent, self-reliant and self-educating is systemically unacceptable and this forces us into systemic dependency upon the hyper-structures of educational and training institutions and the bureaucracy or cartel that manage their accreditations to suggest to a potential employer that we might have achieved something worthwhile.

Welfare payments are only payable providing all your time is spent making a stipulated amount of job applications and the rest of the time you must be as unproductive as possible. Ideally you will sit morosely isolated in a cold room contemplating the existential misery of your hopeless situation. It will pay you benefits but it expects to extract the maximum amount of misery in return by making you socially useless and as parasitic and systemically meaningless as possible.

Essentially the system maintains an elevated level of difficulty to becoming productive or useful as being self-employed or acting as an entrepreneur. It places far too many barriers, legal requirements and obstacles in the way to stop people from becoming productive and useful on their own terms. The distinctions in our societies between being a private citizen and a businessman or trader is systemically constructed and the gulf between them is far too difficult for the majority to cross legally.

Consequently the easiest way to become entrepreneurial is to trade illegally. There is no red tape to stop one from setting up lucrative businesses as a drug trader, criminal or a prostitute. The persistence of crime in our societies is largely derived from the fact that it is so hard to bureaucratically establish oneself as a legitimate and fully regulated trader acting within all the rules and regulations.

There are now, and there probably always have been, too many barriers to realizing and developing one's own productive potentials.

One reads numerous complaints about welfare dependency - yet no one poses questions as to how and why such dependencies actually come about.
As suggested above, a radical hypothesis here is that we are educated and systematically constructed or suspended within the hyper-structure in terms of strict dependency. Many find themselves dependent on welfare simply because it is so hard to become independently productive and self-reliant.
The tendency in the media is to attack the non-productive as if they had brought this upon themselves but in reality it is a systemic construction. Why place any hurdles at all in the way of someone making themselves productive and useful?

If this is a systemic or infrastructural problem then that's great. We can always re-design or create new infrastructures that enable us to become collectively far more productive, socially useful and effective.

We suspect that self sufficiency and independence is a good thing but what is clear is that we are simply not taught or trained to be self-sufficient by the institutions of our infrastructures.Our dependencies are constructed on a very systematic infrastructural level. I will list just a few, very varied examples of how such dependencies function.

The institutions of education are not interested in educating their pupils in how to be able to effectively research and educate themselves as that would ultimately negate the reason for their own institutional existence. The student is thus systemically constructed as institutionally and infrastructurally dependent.

Give a man a fish and he can feed himself for a day. Teach a man how to fish and he can feed himself for a life time. The same is true of education. Recognize your children's or student's interests and foster them, but more importantly, teach them the skills how to research information and teach themselves. Teach them good personal management and how to become educationally self reliant so they can teach, develop and evolve themselves for a life time.

Previously our infrastructures did not offer the resources to make such a thing a viable proposition, but with the advent of modern technologies and the Internet all the resources required are immediately available in principle.

Many people are entirely reliant on frozen junk foods, ready meals and fast foods because the system of education never taught them how to grow their own food or how to cook it. This systemically arranged skills shortage, gives rise to the 'demand' for 'productive' junk food industries. Again we find that such industries are positively constructed in so much as they generate jobs and profits, yet the hidden cost of such 'productivity' is obesity, poor health and ultimately high medical expenses when the system ultimately has to pick up the costs in some form or other.

Again within the twisted logic of systems of waged labour and 'productivity', the negative costs of trying to counter the effects of the unhealthy feeding system in the first place are also constructed as a positive in that the clean-up operations also provide jobs within the health care and numerous other 'industries' associated with tackling weight loss.

We are all entirely reliant on various forms of production, simply because the system never taught us how to make or maintain anything ourselves. If one goes back 30 or 40 years, it was common for many self-taught mechanics to service, repair and maintain their own cars. As more and more technology is introduced into cars and a whole host of other consumer goods, then the scope for self-reliance in cost effectively maintaining them carries on diminishing and we become more dependent of the hyper-structures of the system.

The more complicated laws become, the harder it is to represent oneself and the more dependent we all become on the costly infrastructures of the industry of lawyers, accountants and whole departments which have to be established in order to meet bureaucratic and tautological demands for compliancy.

We assume the existing hyper-structures will deliver us jobs, happiness, wealth, health and financial security. They will not. They are already failing to meet their obligations and will continue to deteriorate in their capacities for fulfilling them.

As our systems of education become too expensive to function, then we need an alternative infrastructure and training that which will enable us to freely educate ourselves.

If our systems of government are too inefficient and too expensive to operate then we need alternative infrastructures which will allow for democratic, efficient and costless self community determination and construction.

If our existing infrastructures for being productive, economically and socially useful are failing, then we need alternative infrastructures to become productive, self-reliant and at the same time improve our communities and the quality of our interactions and daily lives.

If our pension and care systems cannot afford to support aging populations, then we need to establish alternative community based infrastructures for care and support.

Freedom is independence. To be a free thinker is not to be dependent upon existing dogma, national curricula and the existing infrastructures of education and accreditation.

Freedom is not having to be dependent on government for anything. Freedom is not having to depend upon systemically too big to fail banks and a corrupted financial system for one's economic and social security.

Freedom is not having to depend upon our existing infrastructures to be economically productive and useful. Every human being has the potential to be productive and socially useful, the only problem is that our existing infrastructures are far too restrictive in practical terms for the greater part of individuals and communities to fully realize their potential.

What we need is a new war of independence, one that is not waged on the battlefield, but technologically designed and constructed to enable our independence from the stifling hyper-structures of our existing institutions.

Freedom is not foolishly relying or being dependent on governments and institutions to solve our problems for us. Freedom is to take that responsibility upon ourselves and design and construct all the problem solving infrastructures that will be required.

An economy is merely a system that allows for investments and the production and exchange of goods and services and it need not be based upon industrial models of production and consumption and a centrally controlled system of finance, regulation and taxation as such.

If one takes the phenomenon of the exchange of services, then a 'service economy' is merely an economic financialization of what we would commonly refer to as social relations. I can make you a cup of coffee as a friend or as a waged employee in some coffee shop chain. In terms of an economy for the exchange of goods and services there is no intrinsic difference between what takes place in either scenario, The difference exists only in the terms in which the exchange takes place within two different kinds of economy which effectively service the same requirements.

The problem for the financialized service economy as a means of 'organizing' social relations, is that it places a certain degree of mistrust as to the motives of the service provider. We do not know if the service provider resents providing the service or whether we can trust anything they say to us in the process of our exchanges.

They may say "have a nice day!", but we may then think is this a genuinely felt speech act or merely a training manual speaking? When the latter is true then the speech act is vacuous and meaningless. In this process the quality of our social relations and the terms of our exchanges are suspiciously hollow and systemically degenerated by the economization of service exchange.
In short context matters, and our existing infrastructures effectively limit the contexts in which we can realize ourselves as producers and properly humane beings.

Humanity is born into freely co-operative, sociable communities, starting from the smallest family units which are based on relationships of love and free exchange of goods and services. This still functions as an economy, and it is one that very effectively organizes the exchange of good and services between its members.

From this basic unit, we then move onto the economies or communities of our friends and neighbours where our exchanges of goods and services are equally based upon love, friendship, trust and good will. These relationships or economy for the exchange of goods and services are essentially no different from what takes place within financially based economic forms of exchanges of goods and services, but significantly, when such exchanges take place without money changing hands then it is more valuable in a sense as we appreciate the integrity and honestly behind our interactions.

In contrast, in terms of the infrastructures of our broader communities and societies, we find ourselves and the quality and nature of our relationships constrained and determined by financially organized economic chains.

In the real world we make exchanges all the time based upon other different infrastructures which are also based upon different forms of trust. If I accept payment from you for something in traditional terms, for example if you give me cash I trust that you have not passed me counterfeit money. If I accept a cheque, I trust it is genuine and will not bounce. If I accept either, I trust that the value of the currency you have given me will not collapse before I can convert the fiat product of the exchange back into some goods or service that I will need in the future.

The economies of exchange that function in our private spheres, are similarly based upon trust. If I fix your guitar for you today, I trust that you might fix my computer some time in the future if I get a problem. In this example labour and expertise are being exchanged and what is actually being exchanged is absolutely no different from what would happen if a computer expert took a guitar to a guitar workshop to be repaired and some time later the Luthier took their laptop to another repairers shop.

The labour and expertise traded as such are identical, the only difference is between the infrastructures which effectively organize the exchanges that take place. This ad-hoc economy of give and take in friendships is nothing other than a form investment and of saving up for the future possibilities for the exchange of goods and services. The fact that money does not usually change hands does not alter the underlying nature or fundamental economics of such relationships. Both must be productive as such, but it is only when money changes hands that any productivity can be measured, systemically formalized and taxed.

Our current infrastructure for widespread exchange of goods and services based upon trade via fiat currencies, functions far more efficiently than bartering forms of exchange, because its fiat proxy infrastructure makes the exchange easier to arrange as it is spread across a far wider systemic grid of participants.

However, at the same time the traditional fiat currency infrastructure renders the latter form of transaction as recordable and hence taxable whereas the exchange based upon friendship does not as it cannot be booked as such and no fiat profit is made even though we all personally and socially profit from such exchanges all the time.

When one analyzes one’s life one can see that the vast majority of exchanges we make with one and other are not financialized at all and they take place without contracts and direct promises in complex infrastructures of socially private spheres, hopefully governed by notions of community, friendship, love and good will. It stands to reason that within either infrastructure, what has occurred in terms of ‘productivity’ is precisely the same. The only question is which infrastructure would we prefer to base our lives and productivity upon?

What kind of world do we wish to inhabit? A world where one is alienated, stressed, cloistered and isolated within the dubious trappings of the infrastructure of financialized material consumerism, or one where all one’s productivity, material and service exchanges, function in terms of a broader familial sociality and communitarianism - governed by principles of love, friendship and loyalty – of communities defining and building themselves with a sense of purpose as the organic expression of a self-determining collaboration and unity.

Thank you, Simon, for contributing to our understanding of the community-based economy.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

Thursday, August 29, 2013

Our financial-political system has selected leaders and policies that will necessarily fail in the next financial crisis.

Correspondent Brenton Smith (no relation) recently identified a key driver of the next financial crisis: Economic Darwinism. Just as natural selection selects for traits that improve the odds of success/survival in the natural world, Economic Darwinism advances people and policies that boost profits and power within the dominant environment.

As Brenton explains in his essay The One Phrase That Explains the Great Recession, "The Federal Reserve's 20-year policy of easy money created an environment virtually assured to select bankers, bureaucrats, educators, and elected officials who least understood the consequences of a credit crisis."

In other words, a hyper-financialized environment of near-zero interest and abundant credit rewarded those people and policies that succeed in that environment. Once the environment changes from "risk-on" to "risk-off," the people and policies in charge are the worst possible choices for leadership, as the traits that enable successful management of credit crises have been selected out of the leadership pool.

This has political as well as financial consequences. As Brenton noted in an email exchange, Economic Darwinism creates an "incestuous relationship between Wall Street and Washington D.C., where success on Wall Street leads to a career in D.C." This is a self-reinforcing process, as all those who are unwilling to keep dancing during the risk-on speculative orgy are weeded out of both the financial and political sectors, while those who dance the hardest gain political power, which they use to keep the music playing regardless of the increasing risks or consequences to the nation.

Here is an excerpt of Brenton's insightful essay:

Have we seriously forgotten 2008?

Today the Federal Reserve has an economic policy that not only fosters crisis, but introduces a Darwinian process that selects leaders who are uniquely unfit to deal with it.

Let’s step back to 2008, when the investment bank Bear Stearns failed with leverage of 35 to 1, the danger of which should be obvious to anyone who's taken fifth-grade math. Wall Street embraced these dangers to the point where it nearly went extinct. Not only did our government miss the risk, but the head of the Federal Reserve described derivatives, the centerpiece of the crisis, as "a useful risk management tool" held in the hands of the well-capitalized hands of sophisticated investors. Six months later, virtually every government employee would describe the financial crisis as a fast-moving event.

How does this happen? Economic Darwinism. (Emphasis added: CHS) Whether it is getting elected or getting promoted, Economic Darwinism selects people by success. The Federal Reserve's 20-year policy of easy money created an environment virtually assured to select bankers, bureaucrats, educators, and elected officials who least understood the consequences of a credit crisis.

When the Federal Reserve forced interest rates lower, it altered the balance and outcome of risk in favor of risk-takers. That step led to greater earnings streams, or sales, or some measure of profitability. Stupid transactions seemed wise, and foolish risks were rewarded.

The most important thing to understand about booms and Economic Darwinism is that when it happens, the statistical likelihood of any system promoting someone with a sensible risk perspective becomes lower and lower. Capitalism acts as a steroid, drawing cash into successful companies. This process encourages other companies to emulate the practices that made certain companies successful.

By 2008, Darwinism had selected bankers and regulators who never considered that a credit crunch was even possible. Decision makers were oblivious to the cost of capital. The head of Bear Stearns appeared on CNBC to assure his investors days before the company was to be forced into bankruptcy. Lehman Brothers had a secondary offering to raise money only months before its bankruptcy, yet it sold only $3 billion in preferred stock. The survivors of 20 years of success were simply unable to grasp the idea that they could finally start to lose their bets.

The boom times enabled animals called bankers grow to massive size. Nature selected those who were the fittest for that environment. When the environment changed, these animals were like dinosaurs staring at the glaciers. The interest rate policy of the Federal Reserve today is designed to keep those dinosaurs warm and well fed.

The people who run our country were largely selected by Economic Darwinism from a pool of people who owe their success to cheap interest. It is no surprise that these people see cheap interest as the only solution to our economic woes. This policy is about rebuilding their past rather than improving your future.

Thank you, Brenton, for your incisive and prescient analysis. Economic Darwinism doesn't just select people; it also selects policies, mindsets and institutions that are incapable of succeeding when the current serial speculative-bubble blowing policies implode.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

Wednesday, August 28, 2013

Social recession is my term for the social and cultural consequences of a permanently recessionary economy such as that of Japan--and now, Europe and the U.S.

Forget Gross Domestic Product (GDP) as a measure of expansion ("growth") or recession--what really matters is the social recession, which continues to deepen in America. The term social recession has two distinct meanings: around 2000, the term was used to describe the erosion of social cohesion via the decline of institutions such as marriage and the rise of social problems such as teen pregnancy.

Many commentators pinned the responsibility for this erosion of social constraints and bonds on rampant individualism and overstimulated consumerism, while others pointed to urbanization, the commodification of child care, women entering the workforce en masse and similar trends. Poverty was explicitly rejected as a causal factor, hence the term "social recession."

There is a kind of famine of warm interpersonal relations, of easy-to-reach neighbors, of encircling, inclusive memberships, and of solidary family life... . For people lacking in social support of this kind, unemployment has more serious effects, illnesses are more deadly, disappointment with one's children is harder to bear, bouts of depression last longer, and frustration and failed expectations of all kinds are more traumatic.

What happens to the social fabric of an advanced-economy nation after a decade or more of economic stagnation? For an answer, we can turn to Japan. The second-largest economy in the world has stagnated in just this fashion for almost twenty years, and the consequences for the "lost generations" which have come of age in the "lost decades" have been dire. In many ways, the social conventions of Japan are fraying or unraveling under the relentless pressure of an economy in seemingly permanent decline.

While the world sees Japan as the home of consumer technology juggernauts such as Sony and Toshiba and high-tech "bullet trains" (shinkansen), beneath the bright lights of Tokyo and the evident wealth generated by decades of hard work and the massive global export machine of "Japan, Inc," lies a different reality: increasing poverty and decreasing opportunity for the nation's youth.

The media in Japan have popularized the phrase "kakusa shakai," literally meaning "gap society." As the elite slice of society prospers and younger workers are increasingly marginalized, the media has focused on the shrinking middle class. For example, a bestselling book offers tips on how to get by on an annual income of less than three million yen ($30,770). Two million yen ($20,500) has become the de-facto poverty line for millions of Japanese, especially outside high-cost Tokyo.

More than one-third of the workforce is part-time as companies have shed the famed Japanese lifetime employment system, nudged along by government legislation which abolished restrictions on flexible hiring a few years ago. Temp agencies have expanded to fill the need for contract jobs, as permanent job opportunities have dwindled.

Many fear that as the generation of salaried Baby Boomers dies out, the country's economic slide might accelerate. Japan's share of the global economy has fallen below 10 percent from a peak of 18 percent in 1994. Were this decline to continue, income disparities would widen and threaten to pull this once-stable society apart.

Young Japanese, their expectations permanently downsized, are increasingly opting out of the rigid social systems on which Japan, Inc. was built.

The term "Freeter" is a hybrid word that originated in the late 1980s, just as the Japanese property and stock market bubbles reached their zenith. It combines the English "free" and the German "arbeiter," or worker, and describes a lifestyle which is radically different from the buttoned-down rigidity of the permanent-employment economy: freedom to move between jobs.

This absence of loyalty to a company is totally alien to previous generations of driven Japanese "salarymen" who were expected to uncomplainingly turn in 70-hour work weeks at the same company for decades, all in exchange for lifetime employment.

Many young people have come to mistrust big corporations, having seen their fathers or uncles eased out of "lifetime" jobs in the relentless downsizing of the past twenty years. From the point of view of the younger generations, the loyalty their parents unstintingly offered to companies was wasted.

They have also come to see diminishing value in the grueling study and tortuous examinations required to compete for the elite jobs in academia, industry and government; with opportunities fading, long years of study are perceived as pointless.

In contrast, the "freeter" lifestyle is one of hopping between short-term jobs and devoting energy and time to foreign travel, hobbies or other interests.

The downside is permanently downsized income and prospects. Many of the four million "freeters" survive on part-time work and either live at home or in a tiny flat with no bath. A typical "freeter" wage is 1,000 yen ($10.25) an hour.

Derisively called "herbivores" or "Grass-eaters," these young men are uncompetitive and uncommitted to work, evidence of their deep disillusionment with Japan's troubled economy.

A bestselling book titled The Herbivorous Ladylike Men Who Are Changing Japan by Megumi Ushikubo, president of Tokyo marketing firm Infinity, claims that about two-thirds of all Japanese men aged 20-34 are now partial or total grass-eaters. "People who grew up in the bubble era (of the 1980s) really feel like they were let down. They worked so hard and it all came to nothing," says Ms Ushikubo. "So the men who came after them have changed."

With a wealth and income divide widening along generational lines, many young Japanese are attaching themselves to their parents, the generation that accumulated home and savings during the boom years of the 1970's and 1980's. Surveys indicate that roughly two-thirds of freeters live at home.

Freeters "who have no children, no dreams, hope or job skills could become a major burden on society, as they contribute to the decline in the birthrate and in social insurance contributions," Masahiro Yamada, a sociology professor wrote in a magazine essay titled, Parasite Singles Feed on Family System.

An even more extreme social disorder is Hikikomori, or "acute social withdrawal," a condition in which the young live-at-home person will virtually wall themselves off from the world by never leaving their room.

What we're seeing in Japan is the confluence of three dynamics: definancialization, the demise of growth-positive demographics and the devolution of the consumerist model of endless "demand" and "growth."

Japan is the leading-edge of the crumbling model of advanced neoliberal capitalism: that consumerist excess creates wealth, prosperity and happiness.

What consumerist excess actually creates is alienation, social atomization, narcissism, and a profound contradiction at the heart of the consumerist-dependent model of "growth": the narcissism that powers consumerist lust and identity is at odds with the demands of the workplace that generates the income needed to consume.

The younger generation of workers raised in a consumerist "paradise" are facing an economic stagnation that reduces opportunities to earn the high income needed to fulfill the consumerist demands for status symbols. Given the hopelessness of earning enough to afford the consumerist lifestyle, they have abandoned traditional status symbols such as luxury autos and taken up fashion and media as expressions of consumerism.

But the narcissism bred by consumerism has nurtured a kind of emotional isolation and immaturity, what might be called permanent adolescence, which leaves many young people without the tools needed to handle criticism, collaboration and the pressures of the workplace.

Narcissism is the result of the consumerist society's relentless focus on the essential project of consumerism, which is "the only self that is real is the self that is purchased and projected."

In my analysis, this is the direct consequence of the supremacy of a consumerism that is dependent on financialization: an economy dependent on debt-fueled consumption to power its "endless growth" is one that will necessarily implode from its internal contradictions: debt and leverage eventually exceed the carrying capacity of the collateral and the national income, and the narcissism of consumerism leads to social recession, a crippling state of "suspended animation" adolescence and great personal frustration and unhappiness.

The ultimate contradiction in this debt-consumption version of capitalism is this:how can an economy have "endless expansion and growth" when pay and opportunities for secure, high-paying jobs are both relentlessly declining? It cannot. Financialization, consumerist narcissism and the end of growth are inextricably linked.

This leads to a dispiriting no exit:It's as if there is a split in the road and no third way: some young people make it onto the traditional corporate or government career path, and everyone else is left in part-time suspended animation with few options for adult expression or development.

We need a third way that offers people work, resilience and authentic meaning. In my view, that cannot come from the Central State or the global corporate workplace: it can only come from a relocalized economy in revitalized communities.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

Discussions of the global financial crisis tend to be bloodless accounts of policy and "growth." This detachment masks the immense and totally needless human misery created by financial engineering. A correspondent with first-hand knowledge of the situation in Cyprus filed this account:

"RE: the Cyprus economic crisis, the politicians are unbowed by the chaos they caused, still behaving as they have always done, preaching populist platitudes, corrupt as ever, unapologetic. A poll showed that 99% of Cypriots believe their government is corrupt.

Yesterday, the former president, Demetris Christofias, appeared before a tribunal investigating the causes of the economic collapse. He tried to force the tribunal to do what he told them, saying, "I am not just any witness, I was the President of the Republic for 5 years". They told him where to get off and he stormed out.

Little hope for this country. Money leaving. Best talent leaving. Foreign investment in a planned energy hub has been hijacked by the politicians. Cyprus is returning back to what it always was: a tourist destination run by shopkeepers and farmers.Sad days. Most people feel betrayed by the politicians and big powers."

This report highlights a key dynamic of speculative credit/banking bubbles: they require the complicity of central banks and the state. Speculative bubbles based solely on cash have very short lifespans, as the bubble bursts violently as soon as the gamblers' cash has been sucked into the vortex.

Truly devastating speculative bubbles require a vast expansion of credit and the corruption of the political class that feeds off the state. As Credit is ultimately managed by the state, central banks and the banking cartel, no speculative credit bubble can arise without the complicity and collaboration of all three.

Speculative credit bubbles are the hallmark of parasitic financial systems and what I term the Neofeudal-Neocolonial Model of Financialization: In the neofeudal, neocolonial model, speculation by the parasitic Aristocracy is backstopped by the taxpayers--the perfection of moral hazard. The E.U., Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012).

Future taxpayers are burdened with crushing mountains of debt taken on to fund corrupt state fiefdoms and politically sacrosanct cartels and constituencies.

Debt (that profits the parasitic financial Aristocracy) is heavily incentivized while saving capital (cash) is punished with negative yields.The incentives to accumulate cash capital and invest it productively rather than speculatively are systematically destroyed.

This is the essence of the neocolonial model: make money cheap, reward consumption and speculation in asset bubbles and draw once-prudent citizens into debt-serfdom. Those not ready for big-mortgage serfdom are snared with $100,000 student loans.

This is the same mechanism used to stripmine colonies with financialization: no coercion necessary. "They did it to themselves."

This neocolonial model leads to neofeudalism: Once the asset bubble burst, your (phantom) wealth has vanished, but you still owe us the debt. In an economy based on debt, servicing that debt absorbs much of the income. So you need to borrow more to get by.

The destructive incentives, corruption and erosion of productive investment are masked by the rapidly rising phantom wealth created by the bubble in real estate and stocks. Something else happens when speculative credit bubbles inflate housing: rents also rise as the cost of buying homes skyrockets.

As a result, even those who prudently avoided buying into bubbles see their incomes siphoned off.

This is what speculative credit bubbles look like in household terms:

Productivity per worker keeps increasing:

As do financial profits per worker:

Financial profits as a share of the economy have soared:

But the share of a financialized neofeudal economy that flows to workers declines:

Adjusted for inflation, real household incomes stagnate even as the credit bubble boosts the value of assets owned by the financial Aristocracy:

The Neofeudal-Neocolonial Model is playing out everywhere as the home economies are ruthlessly pillaged in the financialized version of the old colonial exploitation model:

My definition of Neoliberal Capitalism differs significantly from the conventional view: markets are opened specifically to benefit the Central State and global corporations, and risk is masked by financialization and then ultimately passed onto the taxpayers. In this view, the essence of Neoliberal Capitalism is: profits are privatized but losses are socialized, i.e. passed on to the taxpayers via bailouts, sweetheart loans, State guarantees, the monetization of private losses as newly issued public debt, etc.

The consequences of this vast transfer of risk and the cleanup costs of the credit bubble to citizens and debt-serfs is human misery on an immense scale.

Are you in the New York City region? Meet other OfTwoMinds Like-Minded people(via Meetup) interested in building social capital and exploring the alternative ideas presented here. Check it out! (Thank you, Neil T. for establishing this Meetup.)

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

Sunday, August 25, 2013

The reality is that the recession never ended for 95% of U.S. households, and by many metrics the recession has deepened.

If you want to claim the 2008 recession ended, you have to find a metric that reflects "growth." For instance, gross domestic product (GDP), which has expanded since 2009.

But as Lance Roberts, Gordon T. Long and I discuss in Is the US in a Recession? (43 min. video, 52 slides), this metric of "growth" is suspect on a number of counts.For example, does this chart of full-time employees relative to the population look expansionary?

Or how about this chart of median household income, which adjusted for inflation is down 7.2%?

Or how about real personal income less government personal transfers on a 5-year basis (the red line)? Notice that the red line only popped briefly above 0% into "growth" in late 2012 as those who could declared income in 2012 before the 1013 tax increases kicked in.

None of these charts is remotely expansionary. We can further question broad-based measures of expansion such as GDP statistically: in economies with high income/wealth inequality such as the U.S., the top 5%'s expansion of income and wealth creates an illusion that the entire workforce is doing better when the opposite is true.

If you doubt this, please examine this chart of income disparity. Note that the vast majority of income increases have accrued to the top 5%:

In other words, huge leaps in the income and wealth of the top 5% mask the decline of income and wealth of the bottom 95%. Average all wealth and income and it appears that the economy is expanding to the benefit of all, when it fact only the top 5% have escaped the recession; the recession never ended for the bottom 95%.

An even better way to create an illusory expansion is to simply not measure trends that would reveal a deepening recession. For example, what percentage of student loans are purposefully taken out as a substitute for income, i.e. used to pay basic living expenses rather than education? Anecdotally, there is plentiful evidence that a great many people are signing up for one class at the local community college in order to get a student loan to live on.

Is it any wonder that student loan default rates are soaring? The people taking out student loans just to get by have no means to make payments once the loan money is consumed.

Is an economy of people obtaining student loans they have no way to service as the only available means to keep themselves off the street a healthy economy?

Headship rate: 36% (percentage who are heads of households)
Full-time employment: 44%
Unemployment: 8-13%
Persons per household: 2.72
Participation rate: 76% (the number of people who are counted as participating in the economy)

How many people 34 and under qualify for a non-subsidized home mortgage? That is, how many qualify under traditional rules (income = 3 X mortgage payments, 20% down payment in cash, etc.) How many people in this age group can possibly qualify for a conventional mortgage when only 44% have full-time jobs?

Is an economy in which people in their 30s cannot find full-time work or afford to buy a house a non-recessionary economy?

The reality is that the recession never ended for 95% of U.S. households, and by many metrics the recession has deepened. The trick is to not measure those metrics; what isn't measured doesn't exist, especially recession.

Are you in the New York City region? Meet other OfTwoMinds Like-Minded people(via Meetup) interested in building social capital and exploring the alternative ideas presented here. Check it out! (Thank you, Neil T. for establishing this Meetup.)

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

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